Updated 6 February, 2014

Just as a few decades ago, there was a perception that the Japanese could only copy and improve but not innovate, this perception today applies to China and India. Then, Japan countered by setting up MITI, the Ministry of International Trade and Technology, that fostered investments in technology which, together with private investment, enabled it to catch up with and in many industries to surpass the West. In the 60 years since the end of WWII, Japan is second only to the US in number of patents filed.

China and India realise that to succeed in the 21st Century, copying and improving is not good enough. They will need to innovate by investing in scientific research and higher education. Both have set up first class universities focused on technology. Both run national five-year plans and technology and innovation loom large in those plans.

Chinese innovation

According to McKinsey, China’s next five-year plan (2012-2017) aims to transform the world’s second-largest economy from an investment-driven dynamo into a global powerhouse with a steadier and more stable trajectory. The plan affects domestic and foreign companies in all industries. To help senior managers decode and understand its provisions, McKinsey analysed the potential impact on 33 industries. Two dimensions stood out: the effect on their profit pools and competitive landscapes.

“The plan characterizes a handful of industries as emerging battlegrounds where countries will be competing for technological leadership during the next wave of development. These industries, including new energy sources and biotechnology, are distinguished by their high profit growth potential and moderate state oversight. In these areas, the government has dedicated itself to incubating national and global champions by helping them gain leading technologies and expanding their commercial capabilities.

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China’s ambitious 12th five-year plan builds on decades of unprecedented economic growth. It seeks to transform the economy from an investment-led powerhouse focused exclusively on GDP growth to a sustainable model that balances growth with social harmony, and innovation with environmental protection. Whether or not the full slate of aspirations can be achieved, the direction in which China’s leaders hope to move the country is clear.”

In the meantime, China is forging ahead with patenting inventions, a strong indicator of innovative capabilities. The World Intellectual Property Organisation predicted that either in 2011 or 2012, China will overtake Germany as number 3 in terms of international patents filed at around 20,000 applications, still behind Japan at 35,000 and the US at around 45,000. India is somewhat behind at well under 2,000. If one looks at national patent applications, namely the stage before an organisation applies for an international application, the picture is even starker: US at 450,000, China and Japan both around 350,000, with Korea, Germany and EU collectively between 100,000 and 150,000.

At a less formal level, the number of published scientific papers is another indicator of innovation. In 2011, China will be the second largest source (after the US), having beaten Britain in 2008. It should be noted, however, that there is widespread concern regarding academic and scientific fraud in China. If this practice is not reduced at least if not eliminated, it could stymie China’s thrust in innovation.

In late 2010, Tianhe-1A briefly became the world’s fastest supercomputer. Then in October 2011, the Sunway Bluelight MPP broke the petaflop barrier (a quadrillion floating point operations per second). It is amongst the world’s top 20 computers. Not only did it use Chinese chips but it also achieved a low power consumption compared to its peers.

At a practical level, China is number one in solar energy, wind power and hydroelectric power generation it has invented several electric cars, with billions being spent on electric carcharging station infrastructure. It is active with wave energy transformers, and – of course – biotechnology.

Finally, China is encouraging its nuclear scientists in their search for the ‘holy grail’ of nuclear energy, ‘cold’ nuclear fusion. Current technology is based on nuclear fission where uranium molecules break-up and give up their energy as they transform into lower energy plutonium – with all the negative consequences of waste nuclear material and the need to contain the reaction and protect the plant from earthquakes, tsunamis and so forth. Nuclear fusion, by contrast, is where deuterium, an isotope of hydrogen extracted from sea water, known as ‘heavy hydrogen’ is fused with tritium, another rare radioactive isotope of hydrogen releasing enormous energy – all at non-threatening temperatures. It is estimated that one litre of sea water could produce the same amount of energy as 300 litres of petrol!

As a footnote, don’t forget China invented a viable electric cycle that over a few years has reached $11bn worldwide. Admittedly, some of it is in place of ordinary bikes, but many more are substitutes for cars, reducing pollution.

India, as in many other areas, is lagging behind in innovation. The number of science and engineering graduates, the number of published scientific papers and the number of patents files all lag behind. This is partly historical and partly due to lack of heavy government financial and other support.

Nevertheless, in many areas Indian innovation is ahead of China’s: in software, pharmaceuticals, and in mobile digital technology. McKinsey predicts that India’s internet users will increase five-fold by 2015 to 35% of the population and three quarters will choose mobile access. A local Android based smartphone costs less than half that of iPhone. Applications, both ‘smart’ and traditional abound for both urban and rural users, the latter helping to improve both productivity and get better prices for their produce. With 830m subscribers of mobile phones, second only to China and an average of 10m devices pm, mobile technology is the technology of choice for Indians. With long battery life, local phones are outselling global branded ones. Furthermore, they are beginning to penetrate overseas markets such as in Bangladesh, Sri Lanka and parts of Africa.

The most telling sign that India is moving from a ‘developing’ nation status to that of a ‘developed’ nation is the number of overseas returnees. Many of these are graduates of the prestigious world-class IITs and IIMs. They bring back with them experience gained with world-class innovative firms. That combined with the emergence of a vibrant and growing middle class and domestic market may well prove to be a tipping point for India.

Finally, don’t forget the Tata Nano. It is not a radical invention. Yet, it created a 1 lakh rupee (around $2,000) car that existing manufacturers thought not feasible. That is innovation!